Debt settlement companies may mislead you

August 14th, 2010, 4:01 pm

Recently, I have heard many Creditor rights and debt settlement companies making statements about bankruptcy that are at best inaccurate, and at worst an attempt to dissuade Debtors from filing bankruptcy in lieu of loosing their home and entering into long-term pay back plans with Creditors that are not in a Debtor’s best interest.  For example, I read one blog article, What No One Tells You About Bankruptcy, Foreclosure and Your Credit, that suggests filing bankruptcy will not always stop a foreclosure, or that your credit score will be harmed beyond repair for a decade by filing a Chapter 13 case.With all due respect to these positions on bankruptcy and its effect on credit, I would suggest that most homeowners facing foreclosure are already at the bottom of the credit score spectrum.  Additionally, the only way to guarantee that a foreclosure is stopped is by filing a bankruptcy.  Pursuant to section 362(a) of Title 11, once a bankruptcy case is filed, the foreclosure MUST be stopped, and the only way a creditor can continue is by filing a motion for relief from the automatic stay.  In order for a creditor to do this, the homeowner must fail to make there subsequent payments. 

I will grant you that many Chapter 13 cases do fail, but the reason for that are unrealistic plans, and underestimating a Debtor’s expenses on schedule J, or an artificially inflated income on schedule I based upon untrue revenues from self employment. 

What I have found in my practice is that a Debtor needs to take a hard look at there situation and determine if their house is (1) worth saving, and (2) if the homeowner has enough income to stay current and pay back their missed armaments over a 5 year period.

With respect to the contention that one’s credit score will decrease with the filing of a bankruptcy and be harmed for up to 10 years, that is a very dangerous statement to make.  In fact, it is actually possible for your FICO score to increase after your bankruptcy discharge.  The reason for this is very simple, approximately 35% of your credit score is based upon the amount of debt.  If you discharge thousands of dollars in debt, then that part of the calculation can only increase.  Another approximately 35% of the FICO score is based upon your payment history.  If by filing a bankruptcy, you no longer have debts to be in arrears on, then again you can only go up, over time as you make your chapter 13 plan payments.  This is not to say that filing of a bankruptcy does not take a negative toll on your credit score, but it is balanced by the positives.  In many situations, Debtors, especially those with a mortgage can rebuild their credit with in 24 – 30 months to the point of obtaining new secured debt loans.  I do however, caution my clients to be careful not to fall into their old bad habits which created the need for the bankruptcy filing.

The bottom lines is that if you are facing a foreclosure or have a significant amount of unsecured debt, it is always a good idea to talk to a bankruptcy attorney or consumer debt advocate in your area before making any decision.  Most of these attorneys such as me do not charge a consultation fee for the initial meeting and can provide you with a great deal of insight.

Filed under Bankruptcy, Foreclosure, Automatic Stay · Comments

Loan Modifications are not the only option

May 27th, 2010, 10:18 am

The term loan modification is not a new one, but it has picked up a lot of speed over the past year. In the past, homeowners and lenders have been able to workout deals to change the essential terms of a mortgage through private negations. However, in March of 2009, the United States government released their Home Affordable Modification Program (“HAMP”) and all of a sudden it was the new craze. The problem is now that the Government is involved at least to some extent, consumers seem to believe that banks have an obligation to “modify” or change a loan. When in reality, the government has no teeth to force the banks to do anything. A loan modification or credit workout is purely an optional program.With that said, many consumers and frankly even Consumer Debt Advocates have been taken advantage of by the banks who have at the very least given the appearance of acting in a deceptive manor with respect to these loan modifications. Many homeowners were accepted into a loan modification trial program, in order to prove that they could make modified payments. The homeowners has made these payments for several months and after they have been faithfully making good on that agreement are kicked out for no reason, or even fraudulent or deceptive reasons and are facing foreclosure.

Many of use know the deal; the bank requests a bunch of documentation to review. They claim that they have not had a chance to review it and so ask for updated information. They do this while arrears are building up, and then finally offer a trial plan. Once the homeowner is in the trial plan for what is represented to them as 3 months, they soon learn that it can become two to three times as long, all the while the homeowner faithfully performs their obligations under a new agreement and pays sometimes tens of thousands of dollars to the bank, instead of investing that money in other avenues that my be more effective, such as filing for a chapter 13 bankruptcy, or challenging the standing of the banks.

It has been suggested by many on the interest though various blogs and chat rooms that this loan modification is nothing more then the banking industry’s “well-thought-out scam where the lender, knowing full well they ultimately intend to foreclose string the homeowner along to collect a few additional payments.

What many people do not seem to realize, is that there are other opportunities to save your home, or in the alternative, cut your losses before they arrears get too great to manage. The key to remember is that should you want to walk away from your home, if the home is sold for less then you owe, you may be liable for the debt. In order to avoid this, a simple Chapter 7 bankruptcy can eliminate that risk. Additionally, you can file a Chapter 13 case and pay back the missed payments over 5 years interest free. Perhaps more importantly, when you file a bankruptcy, the bank must stop any foreclosure or collection attempts for past due amounts. It may provide you with the time you need to go into court whether it be through the bankruptcy court, the land court or even superior court to challenge the standing of the bank.

The lender must prove that they even have a right to foreclose and in order to do this, they must have a copy of your original mortgage and note. If they can not produce that note, then a judge may indefinitely stay their foreclosure. If they file a claim for past due amounts, the bankruptcy court may hear this as evidence of a challenge to the proof of claim. You also may request a copy of your loan application and find out that there are many untrue statements that bank used to issue the loan. If this is the case, you may even be able to strengthen your position and negotiate a “real modification” where you have now come full circle.

Additionally, should you have a second mortgage that is not supported by any equity, you may be able to strip the lien entirely though a Chapter 13. In the event that the home is not your primary home, but rather an investment, you may even be able to cram down the principal to its current fair market value and a reasonable interest rate through a court order.

The bottom line is this, do not trust that you will obtain a loan modification even if you have been put into a trial period. You have several options, and should contact a qualified consumer debt attorney to learn what options are at your disposal.

Filed under Debt Negotiation, Bankruptcy, Foreclosure, Automatic Stay, Loan Modification · 4 Comments

The Top Bankruptcy Questions

August 12th, 2009, 5:27 pm

As a practicing bankruptcy attorney in Massachusetts, I been asked many questions about certain debts and assets, which people have and are concerned with prior to filing bankruptcy.   I have determined the top bankruptcy questions that I receive below:
Q: What income do I need to disclose on my bankruptcy petition?

A: The following types of income need to be reported:

1. wages, salary, tips or bonuses
2. Profit from a business
3. bank interest
4. Stock dividends
5. Royalties
6. income from realestate
7. Pensions and retirement income not part of an ERISA protected account
8. Child support or Alimony
9. Unemployment or workers compensation benefits

Q:         Will filing for bankruptcy protect me from creditors?
A:         When you file for bankruptcy, Section 362 of Title 11 provides an automatic stay. The automatic stay stops most creditors from taking any action to collect the debts you owe them unless the bankruptcy court lifts the stay and lets the creditor precede with collections.

Q: What if a creditor tries to collect after my bankruptcy?
A: If a creditor attempts to collect a debt after your bankruptcy is discharged, the creditor would be violating the law and could be held in contempt of court. The only way a creditor can come after you following your discharge is if you neglect to list the creditor on your bankruptcy forms and fail to provide notice to said creditor of your bankruptcy.

Q:         Will my creditors object to my bankruptcy filing?
A:         Although every creditor has the right to object to a bankruptcy filing, most creditors will just write off your debt, as a result of the legal fees they may incur in trying to prove their debt should survive your filing.

Q:         What’s the value of my house and car?
A:         In order to determine if certain property will be exempt under the bankruptcy law, you need to value the property at the replacement value.  This value can make the difference whether you get to keep your house or car. You should consult with a local bankruptcy attorney to find out what the maximum value of property is in your state. However, if you want to get a good idea of the market value of your property, you should look at your tax bill, which will have an accessed value.

Q: Can I file for Chapter 7 even if I make too much?
A: You may still be able to file for chapter 7 bankruptcy protection even if you make a significant amount of money. If your projected disposable income over the next five years is less than $6,000 ($100/month), you qualify under the means test exception and can file under Chapter 7.

If your disposable income falls between $6,000 and $10,000 over the next five years then you must compare your disposable income over the next five years to a percentage of your unsecured debt to determine whether any significant repayment to your creditors is possible. If your disposable income over those five years is greater than 25% of your unsecured, non-priority debts, you find yourself in the same circumstances as if you’d had more than $10,000 in disposable income. If your disposable income over a five year period is less than 25% of your unsecured, non-priority debts, you “pass” the means test.
 

Filed under Bankruptcy, Post Petition Protection, Automatic Stay · 1 Comment

Loan Modifications can be done even inside a bankruptcy

May 29th, 2009, 7:54 am

For Debtor’s in Massachusetts, a new standing order of the Bankruptcy court may provide for significant mortgage relief even when the automatic stay is in place.  The benefit f mortgage workouts or loan modifications as they are commonly referred to has not been an option for many Debtors who have filed for protection under the bankruptcy laws.  More specifically, Section 362 of the bankruptcy code makes it illegal for a Creditor and Debtor to negotiate a change to the terms of their mortgage or any other contract for that matter pursuant to the Automatic Stay.  Now a standing order by the court may provide some relief.

Standing Order 09.03, reads in pertinent part, “To the extent that the Automatic Stay Pursuant to 11 U.S.C. s. 362(a) may be applicable to a Debtor or property of the estate and has not been terminated or lifted, relief from the automatic stay shall be deemed granted, without a hearing or further order … in order to enable a Secured Creditor … to discuss and or negotiate with a Debtor a proposed modification of the terms of any secured indebtedness including without limitation, a home mortgage… Further, nothing herein shall authorize a Debtor or Creditor to enter into a loan modification without Court authority.”

What the foregoing would seem to say is that it is now permissible to file a chapter 7 or 13 bankruptcy in order to discharge unsecured debt and while inside that bankruptcy, conduct a loan modification.  Once a proposal has been put forth by the Creditor and accepted on principal by the Debtor, the Parties only then need to obtain court approval for such a transaction.

Filed under Debt Negotiation, Bankruptcy, Automatic Stay, Loan Modification · Comments

California Town files Bankruptcy

September 16th, 2008, 8:30 am

In these tough times, bankruptcy protection is a tool used by not only many debtors and businesses, but now cities and towns who can meet their financial obligations.  Early this summer, the town of Vallejo California filed for bankruptcy to protect its assets from creditors.  It would appear that the town overextended its credit, similar to the way many small businesses do the same.  The town reported it did not have the ability to pay for services it renders.

With declining tax revenues and increasing labor costs the town is squarely staring at over $16 million in debt.  By filing, the town will be able to take advantage of the automatic stay put in place, in much the same way, consumers use the stay.  Creditors will be unable to file suit or attempt to collect debts, while the town comes up with a plan to pay off its creditors; Home owners often file in order to stay a foreclosure.

What this filing signifies to me is that we are in a truly new era of financial difficulty, one that now affects not only consumers and business, but also the very government services we all depend upon.

Filed under Bankruptcy, Automatic Stay · Comments

Emotional Distress Damages Awarded for Creditor Violations of the Automatic Stay

August 18th, 2008, 10:22 am

Emotional damages qualify as “actual damages” under the Bankruptcy Code provision authorizing recovery of actual damages for the willful violation of automatic stay. Fleet Mortg. Group, Inc. v. Kaneb, 196 F.3d 265, 35 Bankr. Ct. Dec. (CRR) 45, Bankr. L. Rep. (CCH) ¶78044 (1st Cir. 1999).”Actual damages,” such as may be recovered by any individual injured by willful violation of automatic stay, include damages for emotional distress. In re Dawson, 390 F.3d 1139, Bankr. L. Rep. (CCH) P 80207 (9th Cir. 2004), petition for cert. filed (U.S. May 27, 2005).

To be entitled to award of emotional distress damages for willful violation of automatic stay, an individual must: (1) suffer significant harm; (2) clearly establish that significant harm; and (3) demonstrate a causal connection between that harm and violation of automatic stay. In re Dawson.

Though pecuniary loss is not prerequisite to recovery of emotional distress damages for willful violation of automatic stay, not every willful stay violation merits compensation for emotional distress, In re Dawson. For individual to recover emotional distress damages for willful violation of automatic stay, he must clearly establish that he has suffered significant emotional harm, such as by presenting corroborating medical evidence or by presenting non-experts, such as family members, friends or coworkers, to testify to manifestations of mental anguish and to clearly establish that significant emotional harm occurred. ID.

Damages for emotional distress are recoverable for willful automatic stay violations; while claims for fleeting or trivial emotional distress are not compensable, an individual who suffers significant harm and demonstrates a causal connection between the harm and the violation of the automatic stay is entitled to be compensated. 11 U.S.C.A. § 362(k). Green Tree Servicing, LLC v. Taylor, 369 B.R. 282, Bankr. L. Rep. (CCH) P 80901 (S.D. W. Va. 2007)

Filed under Post Petition Protection, Automatic Stay · Comments

Avoiding Foreclosure

August 12th, 2008, 11:47 am

In these economic times the percentage of foreclosures in America is on the rise. The homeowner who is facing foreclosure of their primary residence has several options in an attempt to avoid foreclosure. They can negotiate with the lender in an attempt to refinance the loan, get a short sale approved or deed the residence back to the lender in lieu of foreclosure. If the lender is unwilling to negotiate with the homeowner or their representative then there are options of filing a Chapter 13 bankruptcy or a reverse mortgage if the property in jeopardy is an investment property. Even with all of these options at the disposal of the homeowner there still must be a determination by the homeowner of if they indeed wish to save the home from foreclosure or to just allow it to be foreclosed on.Once foreclosure becomes evident, first and foremost the homeowner must make the determination if they in fact want to try to keep the home, if they are financially able to save the home or if it would be more feasible to allow the home to go into foreclosure. Most homeowners attempt to avoid foreclosure due to the misconception that they will save their credit rating if their home is not foreclosed on. Unfortunately this is not correct. Once the homeowner has missed four continuance payments on the mortgage their credit report will already reflect in a negative manner equal to a foreclosure. If the homeowner’s only reasoning for saving the home is to save their credit rating they are already hindered. Most homeowners want to save their home because they need a place to live and need assistance to get out of a situation which millions of American have gotten themselves into.

If the homeowner wants to avoid foreclosure and it is not too late in the process, the auctioneer is not at the front door, then the homeowner can open a line of negotiations with the lender in an attempt to refinance the existing loan. The lender will look at the homeowner’s credit rating at the time of the negotiations – are there any other bills outstanding, are they in any other financial distress – and if there is equity in the home (approximately 25-30%). In addition the lender will look to the amount of time the homeowner has gone without making a mortgage payment. Sometimes the refinancing will be as simple as moving from an ARM loan to a fixed mortgage rate or if there is a FHA loan involved the homeowner could qualify for a partial claim. A partial claim is when the loan is brought current and a lien is placed on the property for the outstanding amount owed until the property is sold or refinanced. Normally, with most negotiations a forbearance agreement is used by the lender in which the homeowner is allowed to delay or reduce payments for a short period of time with the understanding that another option will be used at the close of the time to bring your account to a current status. It is a temporary cease of any and all legal action against the homeowner until a plan of action is determined. This step of refinancing to avoid foreclosure must be used early on in the process. The homeowner must move quickly once a Notice of Default is initiated.

If the homeowner has made the determination that they will not be able to keep the property there are a couple of options that they can attempt to negotiation with the lender. The first is a short sale. A short sale is when the homeowner’s property has been de-valued below the mortgage leaving a shortage between what the current market value of the property and the present mortgage on the property held by the lender. With the lenders agreement the homeowner can sell the property for the fair market value and the deficiency in the mortgage is then considered unsecured. At this junction, the lender can either go after the homeowner for the rest of the unsecured debt through either filing suit themselves or selling the note to another to collect the debt for them. The lender could also forgive the debt altogether. When the debt is forgiven the homeowner is taxed on the amount forgiven as the amount is considered income to the homeowner. The recently passed 2007 Mortgage Forgiveness Debt Relief Act provides non-recognition of the income, which would otherwise be includable. Of course the forgiveness of the shortage of the mortgage is up to the lender. If the lender refuses to forgive the shortage the homeowner has the option to have the short sale of the home and then file a Chapter 7 bankruptcy which would discharge all outstanding debt that the homeowner has including the shortage on the mortgage which had become an unsecured debt upon the short sale.

Another option for the homeowner if they are not going to keep the home is a deed in lieu of foreclosure. The lender again must approve this process and in which the homeowner basically deeds the home over to the lender in satisfaction for the loan in full. In this situation the homeowner will not have the shortage as described in the short sale however the lender will now own the property. This is sometimes a more difficult negotiation for the homeowner to the lender. The key to this in the negotiation is to relate to the lender the expense they are saving from going through the foreclosure against the fact that the property could be sold in the near future. Unfortunately a deed in lieu of a foreclosure can only be perfected when there is no second or junior lien holder on the property.

Unfortunately, in most circumstances the homeowner has waited too long and the time for negotiation is long past when they walk through the attorney’s door for help. In most cases the homeowner has already received the Notice of Default, several demanding letters and the letter that foreclosure is eminent. In this situation the homeowner who wants to keep their property or at least get some breathing room in order to decide what to do has the option of filing a Chapter 13 bankruptcy in order to avoid foreclosure. The Chapter 13 gives immediate protection in the form of an automatic stay. An automatic stay stops all foreclosure processing immediately upon the filing of the Chapter 13. The homeowner will then have an opportunity to make a repayment plan with the lender in which the lender would receive 100% of the missed payments over 36-60 months. Of course the debtor must stay current with all mortgage obligations at the same time as paying back the default. In addition the Chapter 13 will allow the debtor to look at their entire financial situation and any unsecured debt that they have such as credit cards, medical bills, judgments or personal loans can be repaid at a small percentage of the total amount owed within that same 36-60 month pay back period. This would allow the debtor to have more disposable income. Depending on the type of property being foreclosed on and the debtor’s situation, a Chapter 13 bankruptcy could also make available such actions like a “cram down” of the mortgage if the market value of the property is far below the present mortgage. These should be discussed with your attorney, as each situation is different.

These economic times have left many Americans in dire situations in which they must make decision they never thought they would have to, like whether to keep their home or not. When someone finds himself or herself in such a situation the key to survival is not to ignore it. All of the letters and notices from the lender should be red flags to the homeowner to find help. The best help that they could find is a professional early on in the process to guide them and help with the best possible avenue for them to avoid foreclosure.

Filed under Bankruptcy, Foreclosure, Post Petition Protection, Automatic Stay, short sale · 2 Comments

EMOTIONAL DISTRESS DAMAGES FOR VIOLATION OF THE AUTOMATIC STAY

July 8th, 2008, 12:45 pm

It is permissible for a debtor to claim emotional distress damages if a creditor violates the automatic stay protection of the Bankruptcy Code. Emotional distress is classified as an “actual injury” for which a debtor may recover damages under the Bankruptcy Code’s automatic stay provision. In re Rosa, 313 B.R. 1 (Bankr. D. Mass. 2004). When awarding damages for a creditor’s willful stay violation, bankruptcy courts are well suited to determine the reasonableness of a debtor’s emotional injuries on a case-by-case basis.In Rosa the debtor was seeking an award of actual damages for the medical injury that he allegedly suffered as a result of creditor’s stay violations. The debtor bore the burden of proving that the stay violations were the cause of either his medical condition or a worsening of that condition.As suggested by the 9th Circuit:

The criteria for an award of emotional distress damages due to willful violation of automatic stay, is that the individual must: (1) suffer significant harm; (2) clearly establish that significant harm; and (3) demonstrate a causal connection between that harm and violation of automatic stay. In re Dawson, 390 F.3d 1139, Bankr. L. Rep. (CCH) P 80207 (9th Cir. 2004), petition for cert. filed (U.S. May 27, 2005).

For one to recover emotional distress damages for willful violation of automatic stay, he must clearly establish that he has suffered significant emotional harm, such as by presenting corroborating medical evidence or by presenting non-experts, such friends, family or coworkers, to testify to “manifestations of mental anguish” and to clearly show that significant emotional harm occurred. In re Dawson, 390 F.3d 1139, Bankr. L. Rep. (CCH) P 80207 (9th Cir. 2004), petition for cert. filed (U.S. May 27, 2005).

Filed under Bankruptcy, Post Petition Protection, Automatic Stay · Comments

How Chapter 13 can stop a foreclosure

May 16th, 2008, 8:52 pm

In today’s poor economy, where home foreclosures seem to be commonplace, and where debtors have few options to stop a foreclosure, when the bank does not want to negotiate with the debtor, a chapter 13 filing may be the only way out. If a debtor has fallen behind in his or her obligation to a bank with respect to a home mortgage then their home may be subject to a foreclosure action by the bank. In such an action, the bank either by power of sale or by entry may take possession of the home pursuant to various provisions in the mortgage contract with the debtor. As indicated throughout this white paper, there are many requirements that a bank must first adhere to in order to take possession. One of those requirements is to obtain court approval.

A debtor has a mechanism though the bankruptcy code, which can effectuate a complete stop to any foreclosure proceedings. Even if a bank has obtained a court order to foreclose, and even if the bank has set up a foreclosure action date, a debtor can stop those proceedings by way of filing a chapter 13 bankruptcy.

The chapter 13 petitions provide several protections both for the home owner/debtor and a mechanism for the bank to recover its money. A debtor will need to propose a repayment plan, where the mortgage company will receive 100% of the missed payments over a period of 36 to 60 months. The debtor will also be required to remain current with its mortgage obligation, and if the debtor fails to remain current, all bankruptcy protection may be lost. The debtor will receive an automatic stay on any incurred pre-petition debt collection attempt. As such, the bank or mortgage company will be precluded from moving forward with any foreclosure actions during the course of the bankruptcy.

Filed under Bankruptcy, Foreclosure, Automatic Stay · 1 Comment

Student Loan Collections stopped by the automatic Stay

May 6th, 2008, 8:30 pm

Oregon Bankruptcy Lawyer, Karen Oakes, wrote a very interesting article recently detailing the illegal activity of some student loan collection agencies. She points out that when a debtor files a chapter 7 or 13 bankruptcy, the automatic stay not only stops collection of unsecured debt, but also to all debts that the bankruptcy code does not expressly exempt. Student loan debt is NOT one such debt. As such, collection agents, can not attempt to collect student loan payments during the time a consumer bankruptcy is open.

Attorney Oakes writes in her post, “Some student loan debt collectors will either lie to you and tell you that they can continue to collect, or perhaps they are just ignorant of the law. Perhaps the debt collector is willfully ignorant of the law.”

It should be noted that any creditor who intentionally violates the debt protection act and the automatic stay, short of filing for a relief from stay and a judge granting such a motion, is subject to harsh penalties.

If you would like to read her complete article, click here.

Filed under Bankruptcy, Automatic Stay · 1 Comment